Don't Get Suckered in by Deals That Hide Real Cost; Eye-Catching Offers with Attractive Short-Term Rates Can Leave Savers or Borrowers with the Wrong Account

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Byline: Simon Read

MORTGAGE at less than 1%? AThat's what the Chelsea building society launched last week in an attempt to attract potential borrowers. But if you think the rate means you should rush to switch, think again. The move is just the latest headline deal that hides the true cost of the product. Banks and building societies have been at it for years, and their trickery leaves millions of borrowers and savers on the wrong account, either paying too much to borrow or getting much less interest than they deserve.

For starters, the tracker option is only offered on the loan for two years. After that, the rate will revert to Chelsea's standard variable rate, which is currently an expensive 5.45%. That's a lot more than most.

For instance, HSBC is offering a twoyear discount mortgage that works out at 0.99%. More expensive than the Chelsea's deal? Hardly, when you bear in mind that the HSBC offering reverts to its standard variable rate of just 3.94% after two years, some 1.5% cheaper than the Chelsea.

Meanwhile, the Chelsea deal comes with a massive PS1545 fee. It means the sub-1% mortgage will probably work out a lot more expensive than loans with higher headline rates.

"Low mortgage rates with four-figure product fees are little more than a des-perate ploy to grab media coverage," says Andrew Hagger of Moneycomms.co.uk. "But it's just one of the games they play with product design on all types of financial services."

Temporary bonus rates on savings accounts are one of the worst ploys. Anyone who turns to the best buy tables to find a home for a lump sum, for instance, is likely to be sucked into what will eventually turn out to be a rubbish account paying a pittance.

"Providers are banking on a large percentage of savers forgetting when their bonus ends and then earning next to nothing on their cash," Hagger warns.

Charlotte Nelson of Moneyfacts adds: "Savers that are enticed into taking out a high-paying bonus deal could have a shock when the bonus period ends, as rates can fall dramatically, with some falling as low as 0. …